U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: SEPTEMBER 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------- ----------
Commission file number 0-26721
SYNERGY TECHNOLOGIES CORPORATION
(Exact name of small business issuer
as specified in its charter)
COLORADO 84-1379164
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
335 - 25th Street, S.E., Calgary, Alberta Canada T2A 7H8
(403) 269-2274
(Issuer's telephone number)
NOT APPLICABLE
(Former name, former address and former
fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the last practicable date:
33,801,596 shares of Common Stock, $0.002 par value, as of November 7, 2001.
Transitional Small Business Disclosure Format
(check one): Yes No X
--- -- --
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
(UNAUDITED)
PREPARED BY MANAGEMENT
SEPTEMBER 30, 2001
2
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(PREPARED BY MANAGEMENT) FOR THE
NINE MONTH PERIOD ENDED SEPTEMBER 30, 2001
TABLE OF CONTENTS
PAGE
Financial Statements:
Unaudited Consolidated Balance Sheets - As at September 30, 2001 4
and year ended December 31, 2000
Unaudited Consolidated Statements of Operations for the three and 5
nine months ended September 30, 2001 and 2000, and for the period
from November 7, 1996 (Date of Inception) to September 30, 2001
Unaudited Consolidated Statement of Cash Flows for the three and 6
nine months ended September 30, 2001 and 2000, and for the period
from November 7, 1996 (Date of Inception) to September 30, 2001
Unaudited Consolidated Statement of Changes in Stockholders' Equity 8
for the nine months ended September 30, 2001 and the years ended
December 31, 2000 and 1999
Notes to Unaudited Consolidated Financial Statements 9
3
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
ASSETS
AS AT SEPTEMBER 30, AS AT DECEMBER 31,
2001 2000
------------------------ --------------------
CURRENT ASSETS
Cash $ 289,064 $ 76,059
Receivables (Note 5) 39,468 84,761
Receivables - related parties - 2,842
Prepaid expenses 46,760 73,714
------------------------ --------------------
TOTAL CURRENT ASSETS 375,292 237,376
INVESTMENTS (Note 3)
SynGen Technologies 38,028,244 38,028,244
CPJ Technologies 1,432,500 1,062,500
Investment in Private US corporation 1,000,000 1,000,000
------------------------ --------------------
40,460,744 -
Investment in joint venture (Note 3) 76,674 -
------------------------ --------------------
TOTAL INVESTMENTS 40,537,418 40,090,744
Office equipment and computers, net of accumulated depreciation
$38,881 65,251 80,361
------------------------ --------------------
TOTAL ASSETS $ 40,977,961 $ 40,408,481
======================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 531,285 $ 212,794
Accrued expenses 100,042 85,437
------------------------ --------------------
TOTAL CURRENT LIABILITIES 631,327 298,231
LONG TERM LIABILITIES (Note 6)
Notes payable 2,384,949 2,250,000
Notes payable - related parties - 1,000,000
Accrued interest on notes 311,470 134,086
------------------------ --------------------
TOTAL LONG TERM LIABILITIES 2,696,419 3,384,086
Investment in joint venture (Note 3) 80,726 -
------------------------ --------------------
TOTAL LIABILITIES 3,408,472 3,682,317
STOCKHOLDERS' EQUITY
Common stock, $0.002 par value, 50,000,000 shares
authorized, 33,801,596 Shares issued and outstanding 68,584 60,077
Additional paid in capital 49,268,609 45,786,313
Deferred compensation (39,964) (89,770)
Accumulated deficit (11,727,740) (9,030,456)
------------------------ --------------------
TOTAL STOCKHOLDERS' EQUITY 37,569,489 36,726,164
======================== ====================
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 40,977,961 $ 40,408,481
======================== ====================
The accompanying notes are an integral part of these financial statements.
4
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
CUMULATIVE
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS PERIOD FROM
SEPTEMBER 30 ENDED SEPTEMBER 30 NOVEMBER 7,
-------------------------- -------------------------- 1996 (DATE OF
2001 2000 2001 2000 INCEPTION) TO
SEPT 30, 2001
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME
Interest income 3,069 18,847 4,123 18,847 35,566
Consulting income - - - - 8,927
------------------------------------------------------------------------------------------------------------------------------
3,069 18,847 4,123 18,847 44,493
EXPENSES
General and administrative 774,239 567,120 1,778,761 1,289,344 4,948,340
Stock option compensation 23,096 51,208 66,306 784,333 957,866
Compensation related to warrants - - - - 343,744
Technology development 139,968 143,253 547,540 516,103 2,794,752
Dry well expenses - - - - 722,210
------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 937,303 761,581 2,392,607 2,589,780 9,766,912
------------------------------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (934,234) (742,734) (2,388,484) (2,570,933) (9,722,419)
OTHER EXPENSES
Amortization of debt discount and offering
costs - (1,350,000) - (2,250,000) (2,250,000)
Accrued interest on notes payable (56,712) - (177,384) - (311,470)
Share of expenses incurred by joint venture (71,365) - (246,059) - (246,059)
Gain on disposition - - 114,643 - 802,208
------------------------------------------------------------------------------------------------------------------------------
NET LOSS BEFORE TAXES (1,062,311) (2,092,734) (2,697,284) (4,820,933) (11,727,740)
------------------------------------------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAX - - - - -
------------------------------------------------------------------------------------------------------------------------------
NET LOSS $ (955,811) $(2,092,734) $ (2,697,284) $ (4,820,933) $(11,727,740)
==============================================================================================================================
BASIC AND DILUTED LOSS PER COMMON SHARE
$ (0.03) $ (0.16) $ (0.09) $ (0.39) $ (0.74)
==============================================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES USED IN
CALCULATION 33,243,670 13,026,017 31,676,586 12,256,732 15,793,498
==============================================================================================================================
The accompanying notes are an integral part of these financial statements.
5
SYNERGY TECHNOLOGIES CORPORATION AND SUBSIDARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOW
CUMULATIVE
FOR THE THREE MONTHS FOR THE NINE MONTHS PERIOD FROM
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 NOVEMBER 7,
--------------------------------- ---------------------------- 1996 (DATE OF
2001 2000 2001 2000 INCEPTION) TO
SEPT 30, 2001
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
-----------------------------------------------------------------------------------------------------------------------------------
CASH FROM OPERATING ACTIVITIES
Net loss (1,062,311) (2,092,734) (2,697,284) (4,820,933) (11,727,740)
Adjustments to reconcile net loss to
net cash from operations
Dry well expense - - - - 722,210
Depreciation 9,026 5,658 27,829 9,069 47,282
Amortization of unearned
compensation 23,096 51,208 66,306 784,333 957,866
Amortization of debt discount
and offering costs - 1,350,000 - 2,250,000 2,250,000
Accrued interest on notes payable 56,712 - 177,384 - 311,470
Issuance of shares for services 214,823 - 780,629 7,822 1,178,458
Issuance of warrants for services - - - - 343,744
Re-issue of founders shares 106,500 - 106,500 - 106,500
Investment in joint ventures (32,788) - 4,051 - 4,051
Exchange rate loss 23,450 18,564 24,380 28,743 59,357
Loss on disposition of assets - - 904 - (685,328)
Changes in assets and liabilities
Accounts receivable (14,513) (389,567) 45,291 (450,920) (39,469)
Prepaid expenses and deposits 13,887 (36,053) 26,953 (39,695) (46,776)
Accounts receivable - related
parties 60,228 (439,482) 2,842 (491,360) -
Accounts payable (221,016) (198,363) (51,508) (213,716) 849,260
Accounts payable - related
parties 10,145 - 153,088 - 153,088
Accrued expenses 46,430 19,244 14,605 96,903 100,042
-----------------------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM OPERATING
ACTIVITIES (766,331) (1,711,525) (1,318,030) (2,839,754) (5,415,985)
CASH FROM INVESTING ACTIVITIES
Acquisition of oil and gas
properties - - - - (688,188)
Acquisition of property and
equipment (12,137) (24,254) (13,620) (52,679) (114,768)
Acquisition of equity security - - - - (100,000)
-----------------------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM INVESTING
ACTIVITIES (12,137) (24,254) (13,620) (52,679) (902,956)
CASH FROM FINANCING ACTIVITIES
Proceeds from (payments to)
notes payable - related parties (89,827) - (26,983) (13,143) 531,933
Proceeds from (payments to)
notes payable 8,844 23,864 8,844 420,525 823,245
Proceeds from investor deposits (266,521) - - 200,000 202,500
Proceeds from option income - - - - 200,000
6
Net proceeds from convertible
debt - 1,282,500 - 2,137,500 2,137,500
Sales of common stock 1,317,674 323,200 1,587,174 859,199 2,772,184
------------------------------------------------------------------------------------
NET CASH FLOWS FROM FINANCING
ACTIVITIES 970,170 1,629,564 1,569,035 3,604,081 6,667,362
EFFECT OF EXCHANGE RATE CHANGES ON
CASH (23,450) (18,564) (24,380) (28,743) (59,357)
NET CHANGE IN CASH 168,252 (124,779) 213,005 682,905 289,064
CASH AT BEGINNING OF PERIOD 120,812 810,766 76,059 3,082 -
------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 289,064 $ 685,987 $ 289,064 $ 685,987 $ 289,064
============================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
7
SYNERGY TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
------------- ------------ ---------------- -------------- ------------- --------------
TOTAL
ADDITIONAL ACCUMULATED UNEARNED STOCK-HOLDERS'
SHARES AMOUNT PAID IN CAPITAL DEFICIT COMPENSATION EQUITY
(DEFICIT)
-------------- ------------ ---------------- -------------- ------------- --------------
BALANCE AT DECEMBER 31, 1999 11,989,327 $23,980 $ 1,484,455 $(2,958,385) $(1,449,950)
Cancellation of founders shares (496,736) - - - - -
Issuance of shares for cash 710,000 1,420 353,580 - - 355,000
Issuance of shares for royalty 500,000 1,000 1,061,500 - - ,062,500
Issuance of stock options - - 981,330 - - 981,330
Issuance of warrants for services - - 343,744 - - 343,744
September 29, 2000
Issuance of convertible debt - - 2,137,500 - - 2,137,500
Issuance of shares from escrow 14,943,510 29,887 37,998,357 - - 38,028,244
Warrants for stock, January through 431,000 862 430,138 - - 431,000
December 2000
Issuance of shares for services
February 16, 2000 at average prices 1,359,063 2,718 890,919 - - 893,637
Options exercised 105,000 210 104,790 - - 105,000
Unearned compensation - - - - (89,770) (89,770)
Net loss for the period - - - (6,072,071) -
(6,072,071)
-------------- ------------ ------------------------------ ------------- ---------------
BALANCE AT DECEMBER 31, 2000 29,541,164 $60,077 $45,786,313 $(9,030,456) $ (89,770) $36,726,164
============== ============ ============================== ============= ===============
Units for stock - debenture 1,000,000 2,000 998,000 - - 1,000,000
Units for stock - cash 264,000 528 263,472 - - 264,000
Options exercised 5,500 11 5,489 - - 5,500
Re-issue of founders shares 157,143 300 106,200 - - 106,500
Issuance of stock options - - 16,500 - - 16,500
Shares for services 798,907 1,598 779,031 - - 780,629
Issuance of shares for cash 2,034,882 4,070 1,313,604 - - 1,317,674
Unearned compensation - - - - 49,806 49,806
Net loss for the period - - - (2,697,284) - (2,697,284)
============== ============ ============================== ============= ===============
BALANCE AT SEPTEMBER 30, 2001 33,801,596 $68,584 $49,268,609 $(11,727,740) $(39,964) $37,569,489
============== ============ ============================== ============= ===============
The accompanying notes are an integral part of these financial statements.
8
SYNERGY TECHNOLOGIES CORPORATION AND SUBSIDARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
All dollar amounts used herein refer to U.S. dollars unless otherwise indicated.
These statements are prepared using Generally Accepted Accounting Principals as
well as the terms outlined or explained in the year end 10-KSB filing along with
any changes as noted in the March 31, 2001 and June 30, 2001 10-QSB.
All significant transactions between the parent and consolidated affiliates have
been eliminated. The consolidated quarterly financial statements are unaudited.
These statements include all adjustments (consisting of normal recurring
accruals) considered necessary by management to present a fair statement of the
results of operations, financial position and cash flows. The results reported
in these consolidated financial statements should not be regarded as necessarily
indicative of results that may be expected for the entire year.
NOTE 2 - GOING CONCERN
BUSINESS CONDITION - The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplate
continuation of Synergy as a going concern. However, Synergy has had negative
cash flows from operating activities during the quarter ended September 30, 2001
and cumulatively from inception through September 30, 2001. As the Company has
not yet developed or constructed plants or facilities of a commercial size, it
does not expect to be able to generate any substantial amounts of revenues until
the construction of such facilities, or the completion of other arrangements
such as for the construction of such facilities by third parties or the sale of
an interest in the Company's technologies. The construction of any plants or
other facilities would require the Company to raise substantial amounts of
additional funds. The Company does not presently have any known sources of
additional funds, or have other arrangements that would result in any
substantial revenues in the foreseeable future. These conditions raise
substantial doubt about Synergy's ability to continue as a going concern.
Synergy's continued existence is dependent on its ability to obtain additional
financing. The Company will attempt to continue to raise additional funds from
public and private markets and through arrangements with certain related and
unrelated companies with which it is negotiating mutually beneficial agreements
for the use of the technologies. However, there is no assurance that additional
financing will be realized. If Synergy is unable to realize this additional
financing, it could cease to be a going concern.
DEVELOPMENT STAGE COMPANY - Since inception, the Company has spent most of its
efforts raising capital and financing the research and development of certain
technologies; however, it has not yet had sales sufficient to sustain operations
and has relied upon cash flows from financing activities (primarily debt and
equity issuances) to sustain operations. To date the Company has had minimal
revenues and has substantial debt, therefore, the Company is considered to be in
the development stage. The Company's development activities include the
following:
GAS-TO-LIQUIDS TECHNOLOGY (GTL)
While the GTL technology has been used in pilot plants, the Company does not yet
have any plans or arrangements for the construction of a commercial plant. Drake
Synergy Petroleum Limited, a 50% owned joint venture in Nigeria, is pursuing an
opportunity. The Company believes that a long-term gas supply contract on
favorable terms is also critical to successful development and commercial use of
the GTL technology.
CPJ
The Company has a 1/2 BOPD pilot plan that is being used to evaluate heavy oil
upgrading possibilities. The Company is attempting to make arrangements with
third parties such as oil and gas producing companies for the financing and
construction of a 5000 BOPD demonstration plant.
SYNGEN
The Company has installed a 5-litre size SynGen reactor in its Calgary
laboratory. The Company is attempting to enter into licensing or other
arrangements for the use of Syngen with third parties.
9
NOTE 3 - INVESTMENTS, ACQUISITIONS AND TECHNOLOGY DEVELOPMENT
Investments reported on the Consolidated Balance Sheet of the Company include
the following:
SEPTEMBER 30, DECEMBER 31,
2001 2000
----------------- ---------------
Investment in SynGen Technology (See Note 3(a) below) $ 38,028,244 $ 38,028,244
Investment in CPJ Technology (See Note 3(b) below) 1,432,500 1,062,500
Investment in private U.S. corporation (See Note 3(b) below) 1,000,000 1,000,000
----------------- ---------------
$ 40,460,744 $ 40,090,744
================= ===============
(a) SynGen: There were no changes during the current quarter.
(b) CPJ: During the quarter ended September 30, 2001, the Company recorded a
liability of $46,000 to the inventor, Dr. Jorgensen, based on the amended
royalty agreement signed in fiscal 2000, whereby, Dr. Jorgensen was to receive
proceeds of not less than $250,000 from the sale of 100,000 shares of Synergy
Technologies Corporation by February 28, 2001 and an additional $250,000 from
the sale of a further 100,000 shares by February 28, 2002. As of September 30,
2001, Dr. Jorgensen had not sold any of the shares and therefore, based on the
September 28, 2001 closing stock price of $0.65 per share, the difference in net
proceeds is $370,000, of which $324,000 was recorded in the June 30, 2001
Financial Statements.
For the purposes of these financial statements, all operations of Carbon have
been fully consolidated up to November 1, 2000, and subsequently, the Company's
interest in Carbon has been recorded using the Equity Method.
Investment in Carbon as at September 30, 2001:
---------------------------------------------------------------------------------------
o Shares of Carbon
o 2,500 shares valued at Cyprus 1.00 per
share 5,029
o Advances to Carbon 686,352
o 50% of net liabilities of Carbon (772,107)
-----------------------
$ (80,726)
---------------------------------------------------------------------------------------
Investment in Drake Synergy Petroleum as at September 30, 2001:
---------------------------------------------------------------------------------------
o Shares of Drake Synergy Petroleum Ltd.
o 2,500,000 shares valued at Naira 1.00 per
share 22,104
o Advances to Drake Synergy Petroleum 96,726
o 50% of net liabilities of Drake Synergy Petroleum (42,156)
-----------------------
$ 76,674
---------------------------------------------------------------------------------------
10
NOTE 4 - RELATED PARTY TRANSACTIONS
(a) Notes payable of $89,827 reported on the Consolidated Balance Sheets of
the Company as at June 30, 2001 represented the total cumulative
amounts advanced to Synergy for general operations from its 50% owned
joint-venture with Carbon Resources Limited. The note was retired in
full during the quarter ended September 30, 2001.
(b) During the nine-month period ended September 30, 2001, the Company and
its subsidiaries were charged a total of $134,132 in consulting fees by
Glidarc Technologies Inc. (a Texas corporation) for process management
services and technical personnel. Mr. Thomas Cooley, an officer of
Glidarc Technologies, is also the Company's Chief Executive Officer and
a member of the Board of Directors. Mr. Cooley also serves on the Board
of Directors of Syngen Technologies Limited, a wholly owned subsidiary
of the Company, and Carbon, the Company's 50% joint venture. An amount
of $1,409 relating to services provided by Glidarc Technologies through
September 30, 2001 remained due and payable to Glidarc as at the end of
the quarter.
(c) During the quarter ended September 30, 2001, the Company was charged
$54,646 for consulting services and reimbursement of actual expenses by
Huntingtown Associates LLC (a Connecticut corporation) of which Mr.
Baumert is the sole proprietor. Mr. Baumert is a member of the
Company's Board of Directors. Huntingtown Associates charges consulting
services provided by Mr. Baumert at a rate of $1,500 per day plus
expenses. An amount of $61,876 remained due and payable to Huntingtown
Associates as at September 30, 2001.
NOTE 5- RECEIVABLES
Certain expenses for services rendered and supplies acquired in Canada are
subject to a federal Goods and Services Tax of 7% which is refundable to the
Company at fiscal year end. This amount is refundable to the Company in Canadian
Dollars upon filing of a GST return. Total receivables of $39,468 include a GST
refund due to the Company of $14,681, as well as certain other receivables
totaling $24,787.
NOTE 6 - LONG TERM LIABILITIES
(a) Notes payable of $134,949 is reported on the Consolidated Balance Sheet
as at September 30, 2001 which amount represents cash advances from
Stone Canyon Resources Ltd. in respect of general operations. This
amount has no set terms of repayment.
(b) Convertible promissory note's interest in the amount of $279,374 has
been accrued to September 30, 2001 and $32,096 interest payable to SCRL
is included on the Consolidated Balance Sheet as Accrued interest on
notes.
NOTE 7 - COMMON STOCK
(a) Cash proceeds of $1,317,674 were received for the purchase of 1,934,882
Units at $0.65 per Unit and 100,000 Units at $0.60 per Unit pursuant to
an offering commenced second quarter 2001 and made pursuant to
Regulation D, Rule 506. Each Unit consists of a share of common stock
and a warrant to purchase an additional share for $1.30, exercisable at
any time two years from the time of subscription. There are 280,500
Units available for purchase under this offering that has been
subscribed for by a foreign corporation. The funds will be received
during the fourth quarter.
(b) 150,000 shares were re-issued related to the cancellation of founders'
shares in September 2000. These shares were valued at the average
trading value of the stock from the date of issuance. A value of
$106,500 is recorded in the Statement of Operations relating to this
transaction at $0.71 per share.
(c) 53,763 shares were issued to a certain investment firm for financial
advisory services. The shares are recorded in the Consolidated
Statement of Operations under the General and administrative category
at the average trading value of the stock prior to the date of
execution of the agreement. A value of $50,000 is recorded in the
Statement of Operations relating to this transaction at $0.93 per
share.
11
(d) 183,137 shares were issued pursuant to an S-8 registration under the
2001 Employee Stock Option and Award Plan for fees related to various
consulting services. The shares were issued at an average trading value
of $0.90.
The following table summarizes the warrants issued, exercised and expired during
quarter ended September 30, 2001 and the fiscal year ended December 31, 2000 and
those warrants which remain outstanding as at September 30, 2001:
NINE MONTHS ENDED YEAR
SEPTEMBER 30, 2001 ENDED
DECEMBER 31, 2000
==================== =======================
Warrants to purchase common shares, beginning of year 914,666 1,863,000
Warrants issued during the period - -
At $1.00 per share - 710,000
At $1.30 per share 2,034,882 -
At $3.00 per Unit - 84,666
At $3.50 per share (Note 7(a)) 1,264,000 -
Warrants exercised during the period, $1.00 per share - (431,000)
Warrants cancelled during the period, $1.00 per share - (1,264,000)
Warrants expired unexercised during the period, $1.00 per share (130,000) (48,000)
-------------------- -----------------------
Warrants to purchase common shares, end of period 4,083,548 914,666
==================== =======================
STOCK OPTIONS
-------------
The Company has five stock option plans as follows:
o 1998 Directors and Employees Stock Option Plan (Plan "A");
o 1999 Directors and Employees Stock Option Plan (Plan "B");
o 1999 Directors and Advisory Board Members Stock Option Plan (Plan "C");
o 2000 Employees Stock Option and Stock Award Plan (Plan "D"); and,
o 2001 Employees Stock Option and Stock Award Plan (Plan "E")
The following table will summarize options and awards granted, and options and
awards available for grant to the quarter ended September 30, 2001:
PLAN A PLAN B PLAN C PLAN D PLAN E
1998 1999 1999 2000 2001
------------- -------------- -------------- -------------- --------------
Total shares authorized under plan: 900,000 1,000,000 1,100,000 1,500,000 1,000,000
Options/awards granted:
Employees (i) 250,000 350,000 - 131,573 30,907
Directors (i) 400,000 425,000 400,000 36,315 106,674
Non-employees, consultants (ii) 250,000 200,000 - 1,316,175 232,563
Advisory Board members (ii) - - 500,000 - -
------------- -------------- -------------- -------------- --------------
Total options granted 900,000 975,000 900,000 1,484,063 370,144
Expired or cancelled (iii) - 25,000 200,000 15,937 -
------------- -------------- -------------- -------------- --------------
Available for grant at September 30, 2001 - - - - 629,856
============= ============== ============== ============== ==============
12
(a) 10,000 employee stock options granted to various employees, under the 1999
Directors and Employees Option Plan, expired or were cancelled. Also during
the quarter, 15,000 options granted under the 2000 Employees Stock Option
and Stock Award Plan expired.
(b) 100,000 options were granted to our new legal counsel, Burg Simpson Eldredge
Hersh Jardine PC and an additional 50,000 options were granted to a member
of the advisory board for consulting services. Both of these grants were
issued outside of all Company stock option plans and have a strike price of
$1.00.
(i) Options granted to employees and directors for their services as
directors and employees are accounted for using the intrinsic value
method amounting to a value of $11,700 during the quarter.
(ii) The options granted to non-employees and advisory board members are
accounted for by the fair value method. The aggregate fair value of
options granted and shares issued pursuant to these plans during the
quarter ended September 30, 2001 was $16,500, of which $1,493 was charged
to earnings in the current quarter. The remaining $15,007 was deferred
until future periods. The fair value of the options was determined by
using the Black-Scholes option-pricing model with the following
assumptions: dividend yield of 0.0%, weighted average expected volatility
of 18.16%, weighted average risk-free interest rate of 4.25% and expected
life of 2 years.
(iii) Plan "C" includes 200,000 options granted to former Chief Executive
Officer, John Gradek. These options have been cancelled and are being
held in escrow pending the outcome of the ongoing litigation.
The following table summarizes the status of the Company's stock options
(excluding stock awards) and changes thereto during the quarter ended September
30, 2001:
WEIGHTED AVERAGE
SHARES EXERCISE PRICE,
SEPTEMBER 30, 2001
--------------------------------- -----------------------------
Outstanding at beginning of year 2,795,000 -
Granted during period 325,000 1.31
Cancelled during period (325,000) 1.09
Exercised during period (5,500) 1.00
--------------------------------- -----------------------------
Outstanding at end of quarter 2,789,500 $ 1.08
================================= ==============================
NOTE 8 - OTHER EVENTS
There have been no material changes in the on-going litigation of the
organization during the Quarter. Refer to the March 31, and June 30, 2001
10-QSB's for details on outstanding issues.
PLAN OF OPERATION
Synergy's business is the development and licensing of technologies related to
the oil and gas industry. Synergy's three (3) discrete technologies consist of:
(1) conversion of stranded natural gas into synthetic naphtha and
diesel, a gas to liquids process referred to as GTL,
(2) the CPJ process which upgrades heavy oil to more valuable and
easily refined lighter oils; and
(3) SynGen, the cold plasma technology to produce hydrogen rich
streams from natural gas, LPG, gasoline, and diesel.
13
GTL
We continue to evaluate opportunities to participate in the development and
construction of a plant utilizing all or some of its GTL technology in the near
future. Our Drake Synergy Petroleum Limited joint-venture company in Nigeria is
pursuing such an opportunity. The success of a venture is predicated upon the
negotiation of a gas supply for a 20-year term. To date, discussions with
potential sources of financing have been promising, pending a gas contract. The
sulfur free and aromatic free products manufactured at this facility would be
shipped by tanker from Nigeria to markets in the US and/or Europe.
CPJ
Discussions continue with producers in Alberta and Central Alberta to construct
a 5000 bpd upgrade facility. The upgraded product from the plant will likely be
used as synthetic diluents to ship additional heavy crude to market by pipeline.
Such a plant will have a commercial basis but will also serve as a demonstration
plant for the very large heavy oil upgraders planned for the later part of the
decade in Alberta. The 1/2 BPD pilot unit continues to be used to evaluate heavy
oil upgrading for both Canadian bitumen's and refinery atmospheric bottoms. Just
as the GTL process monetizes standard natural gas by conversion to salable
synthetic fuels, the CPJ process can monetiges heavy oil to salable synthetic
oil. Heavy oil reserves occur throughout the world, although the largest know
reserves are in Canada and Venezuela.
SYNGEN
Beginning in the first quarter of 2001, Synergy has focused intensively on the
fuel cell potential for its SynGen reforming technology. It has become readily
apparent that commercial fuel cell applications, both stationary and onboard,
will be fossil fuel based for the foreseeable future. A 5-litre size SynGen
reactor has been installed in the Synergy Calgary laboratory. Tests have shown
that natural gas, gasoline, and diesel can be reformed into hydrogen rich
streams suitable for MCFC and SOFC fuel cells. Discussions are underway to
develop a relationship via formal licensing of SynGen with a SOFC manufacturer.
Work continues on Synergy's other SynGen systems, including the Bantry test
site.
The Company requires significant funding to fully implement our near and
long-term capital requirements. In the near term, we expect to relocate our
principal corporate offices from Calgary, Alberta to Houston, Texas and to
engage senior management including a new Chief Executive Officer and a Chief
Financial Officer. We also will require funds to continue marketing our products
and technologies and for the further research and development of our
technologies. We anticipate that we will require approximately two million
dollars to fund these near-term projects, excluding the construction of
commercial facilities for which we will seek separate financing or a well-funded
development partner. In the past, we have been successful in identifying outside
financing to fund our operations; however, we cannot be certain that we will be
successful in securing new financing on terms acceptable to us.
Our long-term programs, those we are pursuing for a date at least forty-eight
months from the date hereof, include a commercial scale GTL facility and a
commercial scale CPJ heavy oil upgrading facility. We are not seeking financing
to fund these projects at this time but will evaluate our financing strategy and
requirements at such time as we propose to implement these programs.
During the quarter ended September 30, 2001, our development activities
continued to focus on efforts to identify a partner to participate in the
construction of a demonstration plant that monetizes heavy oil to salable
synthetic oil using our CPJ technology. As well, development activities continue
in finalizing the implementation of a commercial scale GTL facility for the
conversion of stranded natural gas into clean burning fuels. We also have
focused on the development of the fuel cell potential of our SynGen reforming
technology, as more fully described below.
For a more complete discussion of our business, please refer to our Annual
Report on Form 10-KSB for the year ended December 31, 2000.
14